Inside Wall Street: Is This Tiny Aussie Biotech the Next Dendreon?

Not many Australian stocks are household names in the U.S., except for some headline-grabbing companies like mining giant BHP Billiton (BHP), which so far has been unsuccessful in trying to acquire Canadian miner Potash (POT). American investors are mostly in the dark about other opportunities in that far-away country. Nonetheless, it harbors a number of attractive bets with huge potential for growth -- largely in Australia's universe of microcap stocks.

As in the U.S., biotech is where you can find enticing but little-known Australian stocks. One of them is Prima BioMed, which currently trades on the Australian Stock Exchange, with the ticker symbol PRR, but which is expected to start trading on Nasdaq in early December, with PBMD as its ticker.

Prima's claim to being a potential winner is that some analysts think it could become the next Dendreon (DNDN). The latter's blockbuster drug Provenge, which targets prostate cancer, catapulted Dendreon's stock to record highs recently.
"A Game-Changer"

Prima's lead product is a cancer vaccine that's initially targeting ovarian cancer. The U.S. Food and Drug Administration has granted the vaccine, called CVac, "orphan status" in the U.S., which allows it seven years of exclusivity from when it's commercially launched. It also gets priority review by the FDA, which waives its fees for orphan drugs.

"We believe Prima BioMed's CVac immunotherapy now in [Phase II] clinical development could be a game-changer in the treatment of ovarian cancer," says Jason Kolbert, biotech analyst at National Securities in New York City. Focused on immunotherapies for cancer, Prima has completed Phase IIa clinical trials with CVac in Australia in 28 patients with advanced disease. The trials "demonstrated encouraging results," notes Kolbert. Prima has filed with the FDA for an "investigational new drug" application to start a Phase IIB clinical trial in the U.S.

What are Prima's similarities with Dendreon? CVac is an immunotherapeutic product based on the same cellular technology as Dendreon's Provenge. "The recent approval of Provenge for asymptomatic or minimally symptomatic metastatic hormone-refractory prostate cancer validates the underlying concept," says Kolbert.

Like Provenge, CVac utilizes activated dendritic cells to stimulate a cellular immune response, rather than just an antibody response, explains the analyst. "We believe this is a key difference which will lead to success," he adds. Early data from trials, though limited, are encouraging, Kolbert says.

A Wider Range of Potential Targets

The Phase IIa clinical trials in Australia included only advanced-stage refractory patients who generally have "compromised" immune systems that are not very responsive to immunotherapy. Future CVac trials, however, will investigate efficacy in patients who have received less prior chemotherapy. "Theoretically, these patients, with intact immune systems, should derive maximum benefit from CVac," says Kolbert.

If CVac succeeds in its goals, Prima could be as big if not bigger than Dendreon. That's because CVac is "directed toward the mucin-1 antigen and may target other cancers that overexpress mucin-1, such as ovarian, breast, lung, colon and pancreatic cancer," says Kolbert. The potential market for the full range of mucin-1 targeting those therapies, if successful, "would likely be several times larger than the market for Provenge," says National Securities' Kolbert.

Stuart Roberts, an analyst at Southern Cross Securities in Sydney, Australia, says the upcoming Phase IIb and Phase III clinical trials will potentially provide the catalyst "to unlock the commercial revenues to Prima BioMed through licensing deals that would yield upfront and milestone payments, as well as royalties."

Roberts, who rates the stock a speculative buy, says "we have a high regard for the company's management led by CEO Martin Rogers and COO Matthew Lehman as we like the commercial approach the company has taken toward releasing value from the quality science behind CVac."

A Field Littered With Failures

So as CVac advances through clinical development, Prima will likely gain greater visibility among investors, and with success, "the upside could be enormous," says Kolbert. Dendreon, currently trading at $41 a share, has a market cap of $6 billion and is like an elephant when compared with the tiny Prima, whose stock is trading in Australia at a mere 10 U.S. cents a share. That gives it a market cap of about $200 million.

National Securities' Kolbert puts the fair market value of Prima at 62 cents, while Southern Cross's Roberts estimates his "low-base" target at 60 cents to 63 cents a share, and his "optimistic" valuation at $1.12.

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However, the bears are far from convinced that CVac will succeed. They contend that the field of cancer immunotherapy is littered with failures and that numerous products have shown early efficacy only to stall in Phase III trials.

Kolbert disagrees. "Prima Biomed is highly undervalued as the market fails to appreciate the potential of CVac," he argues, rating the stock a buy. Big Pharma companies so far have a relatively small presence in the area of immunotherapy, but Dendreon's success, Kolbert says, is "likely to make these companies more interested."

Plenty of investors, wary about the sharp market volatility in the U.S., continue to seek refuge on foreign shores for stocks that promise sizable growth potential without a stiff price. Australia's Prima BioMed could well be one of the names to consider.